Lonmin PLC.

Published : November 09th, 2012

Hemscott News Alert - Lonmin PLC

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RNS Number : 7225Q
Lonmin PLC
09 November 2012
 

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REGULATORY RELEASE

 

 

9 November 2012

 

2012 Final Results Announcement

 

Lonmin Plc, (Lonmin or the Company), the world's third largest primary Platinum producer, today publishes its Final Results for the year ended 30 September 2012.

 

HIGHLIGHTS

 

?      Commendable operational performance in light of circumstances

The tragic events at Marikana significantly impacted operational and financial results

? Impact of 110,000 ounces of mined Platinum

Saleable metal in concentrate down 5.5% to 679,821 Platinum ounces

Platinum sales of 701,831 ounces - down 2.6% on 2011

Improved safety performance - LTIFR of 4.16 per million man hours worked vs. 4..71 in FY2011

Immediately available ore reserves at 3.3 million centares, up 14% - healthy levels aligned to creating operational flexibility to respond to market conditions

Further improvements in grades and concentrator recoveries

Number Two Furnace commissioned on schedule in July 2012 and Number One Furnace successfully modified and operating well

 

?      Financial results

Underlying profit before tax $57 million

Special costs of $755 million, including $159 million for costs related to illegal work stoppage and impairment of Akanani exploration asset at $602 million

Resulting loss before tax of $698 million

 

?      Balance Sheet restructuring

Underwritten Rights Issue to raise c. $817 million announced separately today

Amended banking facilities - strengthening financial position

 

?      Focus areas FY2013 onwards

FY2013 guidance of 680,000 Platinum ounces of saleable metals in concentrate, and sales of 660,000 ounces

Targeting Platinum sales in excess of 750,000 ounces in FY2014 and FY2015

Unit costs to increase by around 10% to ZAR9,350 per PGM ounce produced in FY2013

Capital expenditure of $175 million for 2013 financial year

Attractive long-term fundamentals for PGM markets remain, despite short-term volatility

 

Roger Phillimore, Chairman, said: "The publication of today's results closes a painful chapter in Lonmin's history.  There are many lessons to be learnt and these will inform our actions in the future.  However we are now looking ahead with renewed confidence.  We have secured our financial position and we have a clear strategic plan that management and workers alike need to deliver on for the sake of all our stakeholders."

 

FINANCIAL HIGHLIGHTS

 


30 September 2012


30 September 2011





Revenue

$1,614m


$1,992m

Underlying i operating profit

$67m


$311m

Operating (loss) / profit  ii

$(702)m


$307m

Underlying i profit before taxation

$57m


$315m

(Loss) / profit  before taxation

$(698)m


$293m

Underlying i earnings per share

7.4c


111.6c

(Loss) / earnings per share

(202.3)c


134.8c









Trading cash inflow per share iii

129.8c


311.2c

Free cash (outflow) / inflow per share iv

(78.5)c


103.7c









Net debt as defined by the Group v

$421m


$234m









Gearing vi

14%


7%





 

Footnotes:

i

Underlying results and earnings per share are based on reported results and earnings per share excluding the effect of special items as disclosed in note 3 to the financial statements.

ii

Operating (loss) / profit is defined as revenue less operating expenses before impairment of available for sale financial assets, finance income and expenses and before share of (loss) / profit of equity accounted investments.

iii

Trading cash flow is defined as cash flow from operating activities.

iv

Free cash flow is defined as trading cash flow less capital expenditure on property, plant and equipment and intangibles, proceeds from disposal of assets held for sale and dividends paid to non-controlling interests.

v

Net debt as defined by the Group comprises cash and cash equivalents, bank overdrafts repayable on demand and interest bearing loans and borrowings less unamortised bank fees.

vi

Gearing is calculated as the net debt attributable to the Group divided by the total of the net debt attributable to the Group and equity shareholders' funds.

 

CONTENTS

 

The following sections are contained in this document:

?     Events at Marikana in August and September 2012

?     Chairman's Letter

?     Chief Executive Officer's Review

?     Operational Review

?     Financial Review

?     Reserves & Resources

?     Operating Statistics - 5 Year Review

?     Financial Statements

 

ENQUIRIES

 

Investors / Analysts:

Lonmin

Tanya Chikanza (Head of Investor Relations)

+27 11 218 8300 /

+44 20 7201 6007

Ruli Diseko (Investor Relations Manager)

+27 11 218 8373

 

Media:

Cardew Group

James Clark / Emma Crawshaw

+44 20 7930 0777

Sue Vey

+27 72 644 9777

 

Brunswick - Johannesburg

Cecilia de Almeida

+27 11 502 7400 /

+27 83 325 9169

 

Notes to editors

 

Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, is one of the world's largest primary producers of PGMs. These metals are essential for many industrial applications, especially catalytic converters for internal combustion engine emissions, as well as their widespread use in jewellery.

 

Lonmin's operations are situated in the Bushveld Complex in South Africa, where nearly 80% of known global PGM resources are found.

 

The Company creates value for shareholders through mining, refining and marketing PGMs and has a vertically integrated operational structure - from mine to market. Lonmin's mining operations extract ore from which the Process Division produces refined PGMs for delivery to customers. Underpinning the operations is the Shared Services function which provides high quality levels of support and infrastructure across the operations.

 

For further information please visit our website: http://www.lonmin.com



Events at Marikana in August and September 2012

 

There is no way to begin our Annual Report this year without addressing the terrible events which took place at Marikana in August and September.

 

The scenes which unfolded there shocked and horrified all who witnessed them.  They placed this Company in the global spotlight and, crucially, they left the nation of South Africa seeking answers to some of the most difficult questions it has faced in a generation.

 

Mining is a dangerous business.  We are proud of our record of being the safest primary platinum mining company in the world, but all of us who have been involved in this industry for years know the pain of losing colleagues underground.  Nothing, though, could have prepared the Lonmin family for the loss of so many colleagues during the events which took place.  Like the whole nation around us, it will take a long time for us to come to terms with the tragedy that unfolded and for normality to return.  We have begun that journey, but it will be long and difficult.

 

In compiling our Annual Report this year we faced a challenge in that the Events at Marikana are so relevant to so much of our business that they could be mentioned in most sections of the report.  An Annual Report, however, is, by definition, a complex and technical publication, containing a huge amount of information to help inform its shareholders.

 

For that reason we felt that we should address Marikana immediately. Much has been written by others about those weeks, some of it moving, some insightful but, sadly, much that is wholly inaccurate.  In reporting this year, we felt it was important to deal with that.

 

Of course, the issues around Marikana are the subject of an ongoing judicial inquiry in South Africa.  It is for Judge Farlam and his team, whom we support fully and completely, to establish causes and examine effects, and we do not intend to do that here. It would be entirely wrong to do so.  However some facts, sadly, are not in dispute in that before 16 August eight employees, including two security guards, as well as two policemen were killed whilst on 16 August 34 people were killed and many more injured.

 

Speaking a few days later at a Memorial Service for those who died, we both tried to find the right words to express our deep sorrow, shock and regret at what had happened.  We tried, also, to speak of hope, and healing.  Even now, many weeks later, there are no words adequate to reflect the events of that day; but, our heartfelt sympathy for the families and friends who have lost loved ones remains undiminished.

 

Lonmin with its Black Economic Empowerment (BEE) partner, Shanduka Group (Proprietary) Limited, established the 16/8 Memorial Fund in the wake of the shootings, committing to fund the education of the children of those who died to adulthood, and providing care to the injured.  The fund is to be independently run, and open for public donations or donations from other organisations or companies (a number of which have already, both publicly and anonymously, contributed generously)..  Details can be found elsewhere in this report.

 

In the wake of the shootings sporadic violence continued, combined with a focused campaign of threats and intimidation to prevent the vast majority of our workforce of 28,000 (and another 10,000 contractors) from reporting for work.  We worked hard with SAPS to try to address this, not least because the vast majority of our workforce wanted to return to work, but the very geography of Marikana made this difficult.

 

It is important to remember also that we found ourselves at the centre of nothing less than a national crisis for South Africa.  Certainly we faced huge pressure to find a way to resolve the situation in order that we could start mining again and protect the safety and jobs of tens of thousands who had not been involved, but also to give the nation an opportunity to begin to address the difficult issues it faced.

 

Both Board and Management were convinced that a resolution which could deliver a sustainable peace was essential.

 

We worked tirelessly with government, religious and traditional leaders, unions and other workers' representatives, under the guidance of the Commission for Conciliation, Mediation and Arbitration (CCMA), to bring about a Peace Accord.  We thank all these parties for their involvement and for the significant role each and every one of them played.  That document, which committed all parties to peaceful negotiation, was signed on September 6.  One union chose not to sign, but in the interests of peace we and the other signatory parties reached out to them to join the wage negotiations which followed.

 

The discussions which followed the signing of the Peace Accord resulted in an agreement, again facilitated by the CCMA and signed by all the trade unions party to our existing wage agreement, to add an addendum to our existing wage agreement which gave pay rises of between 11% and 22% to most workers (not including management).  Many have failed to report that this included rises of 9% to 10% already due.  Subsequently we saw an immediate return to work, and the resumption of operations. We refer to this tragic series of events as "Events at Marikana" in the rest of the Annual Report.

 

We believe we did the right thing both for this Company and for South Africa in helping bring the dispute and associated violence to an end.  It was easy to blame Lonmin, as some have done, for the spread of unrest in the weeks after our agreement.  We reject this accusation. Unrest in the mining sector predated the Marikana dispute, and was growing elsewhere during it.

 

Deep-rooted issues of poverty and inequality have been highlighted by what has taken place, but those go beyond mining and to every corner of South Africa.  It is certainly true that mining companies have faced criticism for their efforts to support the transformation agenda in the country and, on Lonmin's behalf, we accept that we must do more, particularly around the nationally difficult issue of housing.  However we are rightly proud of the huge amount we have achieved in education, health, infrastructure and other areas, both for our employees and the wider community - work which has not had the recognition the dedicated teams who deliver it deserve.

 

Nonetheless, no company, however large, can alone address the socio-economic issues facing the Republic.  Only by working in partnership with central and local government to build a sustainable and profitable mining sector can we make the investments needed to create and sustain the jobs and careers which will help solve some of these problems.

 

We are committed to being a good corporate citizen of South Africa, to meeting the challenges set us around BEE and Transformation and, more than this, to being a force for good in a country in which mining is a vital part of economic well-being.

 

In doing all this, however, we must never lose sight of the most important thing, which must be to help ensure that such terrible events never happen again.

 

South Africa is a country which has been through more than most, and come through all challenges to become a better place.  It is a beautiful nation, blessed with many resources and home to a vibrant and determined people.  It deserves to reap the benefits of all of this.  What happened at Marikana was a tragedy for the families and friends of those who died, and for those who still bear the physical and mental injuries of those events; but it was also a warning to all of South Africa.  Together, we must heed that warning.

 

Roger Phillimore                                             Simon Scott

Chairman                                                          Acting Chief Executive Officer

 



Chairman's Letter

 

Dear Fellow Shareholder,

 

This has been a year where issues of business and commerce have been overshadowed by tragic loss of life, violence, unrest and fear.  Events at Marikana and elsewhere mark a watershed for post-Apartheid South Africa, and leave everyone involved in the country asking questions and seeking answers.

 

What is clear, though, is that if South Africa is to deal with the historic issues of poverty and dissatisfaction which underpin much of the unrest we have witnessed, it will require a growing and effective private sector to provide the jobs so desperately needed..  It is business which will help to deliver much of the growth which, in turn, will help to provide the economic, educational and social platforms for change.  Given the country's extensive natural resources, mining will be a key part of that.

 

The future of your Company, like our peers, is intrinsically linked with the future of South Africa.  The Government of the Republic recognises the importance of this link.

 

Whilst there are those who attack the mining industry as being to blame for many of South Africa's ills, and demand it does ever more to address them, I am confident that the government realises that loading more and more costs on to the sector during difficult times can only lead, in the long run, to serious damage to the nation's economy.

 

Certainly miners have a role to play, and perhaps greater responsibility than others given the labour-intensive nature of our businesses.  Your Company accepts that challenge, and that responsibility, but we must also be clear that the change all of us who love South Africa wish to see cannot be delivered by businesses alone.  We are a crucial component, but only by working in partnership with government and other stakeholders can transformation be delivered.  To play our part morally and legally, we must be financially and commercially healthy. We are a business; without being successful at what we do we can do nothing to help South Africa.

 

What is clear from the terrible events of August and September is that, for both government and the mining industry, the reality of what happened has bred a new determination to work in partnership for the betterment of South Africa, and to do all we can to ensure such awful scenes never take place again.

 

Financial Issues Post Year End

 

Since the year end there have been a number of significant financial events affecting your Company, the full details of which are contained in a number of relevant documents you will, I hope, have seen by the time this Annual Report is published.

 

Chief amongst these was our announcement on October 30 that we intended to raise US$800 million in a Rights Issue, the Prospectus for which is being published on 9 November 2012.

 

This was designed with one thing in mind: to help our shareholders maximise returns in the long-term from this Company's excellent assets, operational turnaround and position in the market when it improves.

 

The fact that this Rights Issue is fully underwritten is a real vote of confidence in our business, as well as in South Africa's ability to deal with its short-term problems and move forwards.

 

The Rights Issue is vital, so as not to lose the benefits of your Company's fundamental strengths:

?      Operations located in the world's premier PGM deposit

?      Long life mineral resource base backed by long-term New Order Mining Rights

?      Significant inherent value in existing infrastructure and mineral reserves

?      Attractive long-term fundamentals for PGM markets, despite short-term volatility

?      Maximisation of value through vertical integration

?      Operational gearing

?      Industry leading expertise in processing UG2 ore

 

The Rights Issue should also be viewed against the background of our clear strategic focus on future plans for our outstanding asset at Marikana.

 

Markets, Operations and Costs

 

Platinum miners were hit hard by a combination of lower prices and rising costs, and instability in the latter part of the year.

 

Much of this year saw a continuation of the global economic instability with issues in Europe in particular heavily impacting sentiment across global markets.

 

The Events at Marikana, and subsequent strike action at almost all other South African PGM producers have, given the importance of South African producers to global PGM production, in a short space of time altered the outlook for the supply side of the PGM industry.  These events have increased operating costs for Lonmin and other companies in the South African PGM mining industry, while at the same time creating supply constraints which have contributed to an increase in PGM prices.  Your Board believes that the disruption to the South African PGM mining industry is also likely to result in some capacity reductions in the near term as higher cost operations are forced to reduce output or close down, and/or in the longer term as reduced capital expenditure plans today defer the production of replacement or growth ounces in the future.  Your Board believes that these factors should sustain improved pricing for PGMs.

 

Over the longer term, your Board also believes that improved PGM pricing should be supported by underlying positive demand dynamics.  Automotive demand is expected to be driven by a combination of increasingly stringent emissions legislation, the ongoing extension of this regime to non-road applications and a positive outlook for vehicle sales in US and Chinese markets.  Although Chinese growth expectations have recently been downgraded, consumer expenditure